EBRD WARNS EASTERN EUROPE MUST CONTINUE TO INTEGRATE FINANCIAL SYSTEMS

06.11.2009 [11:37]
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Baku, 6 November 6 (AZERTAC). European Bank for Reconstruction and Development says the transition has sparked a range of problems during the global downturn but argues the benefits outweigh the costs.

Eastern European countries must continue to integrate their financial systems into the world economy even though that transition has sparked a range of problems during the global downturn, the European Bank for Reconstruction and Development (EBRD) will warn today.

While such economies have been dealt a severe blow, Europe`s development bank says the transition process itself will survive the global economic downturn.

The EBRD argues that the benefits of integration outweigh the costs. The problems have disrupted the pace of economic reform in eastern Europe, the report concedes, but there have been no significant reversals and governments remain committed to economic reform.

Analysing the implications of the crisis, EBRD chief economist Erik Berglöf is upbeat. "The fundamental growth model for the region remains intact," he says. "However, the crisis has highlighted weaknesses. There are lessons to be learnt."

The report says one of the costs highlighted by the downturn was the emergence in central and south-eastern Europe of credit booms, over-borrowing and a trend toward foreign currency borrowing. But that was outweighed by high economic growth, and when the crisis was in full flow, the presence of foreign banks played a "crucial stabilising role".

"It is clear that attempting to reverse financial integration would be the wrong conclusion to draw from the crisis. The region would deprive itself of a source of growth," the report said.

Still, the report stresses that the crisis has shown the need for urgent steps to help reduce dependency on foreign exchange lending and to manage the demand for credit more effectively.

EBRD WARNS EASTERN EUROPE MUST CONTINUE TO INTEGRATE FINANCIAL SYSTEMS

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